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    What is An SBA Loan?

    A Small Business Administration (SBA) Loan is a type of business financing that is backed by the federal government and provided by private lenders and banks. These loans are popular for small business owners because they offer large loan amounts, low interest rates, and long repayment periods, which can last up to 25 years.

    However, the application process for SBA Loans is known to be lengthy and document-intensive, which can be a deal-breaker for those needing quick access to funds. Retrieving all the necessary documents alone can take up to half of the application time. But for those who are patient, the effort may be worth it because of the many benefits the loan offers.

    Since SBA Loans are long-term loans with guarantees, every dollar must be accounted for, and the purpose of the funds must be documented at every step. This means identifying how the money will be spent can take time.


    Loan Amounts

    $100,000 – $10,000,000



    Starting at 6.25%



    Less than 30 days

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    How Do SBA Loans Work?

    SBA loans work by partnering the government with lenders to benefit small businesses. The SBA doesn't directly issue loans but guarantees a portion of the loan amount to approved lenders. This reduces the risk for the lender, making them more likely to offer you a loan with favorable terms like lower interest rates and longer repayment periods. However, your business needs to meet size standards and demonstrate a need for the SBA's guarantee to qualify. With a solid business plan, good financials, and a good credit score, you can increase your chances of getting approved by an SBA-approved lender.

    How To Get An SBA Loan

    To get an SBA loan, you need to find an SBA-accredited lender, either banks, credit unions, or alternative lenders. You will have to provide the necessary financial documentation, such as tax returns, financial statements, business plans, and more.

    The lender will then review the application and, if approved, submit it to the SBA for final approval. Once the SBA approves your application, they will guarantee a portion of the loan.

    The SBA requires an unconditional personal guarantee if you own 20% of the business. This means your assets are on the line if your business cannot repay the loan.

    Your lender handles loan closing and fund disbursements, and you pay them directly, following the repayment term schedule.

    Getting an SBA loan doesn't have to be overwhelming. With SMB Compass as your partner, you'll have expert guidance every step of the way. From finding the right lender to navigating the application process and beyond, we're here to support you and your business. If you're not sure where to start, get in touch with us today to begin your journey toward financial success.

    How Can You Use an SBA Loan?

    One of the major characteristics of SBA-guaranteed loans that make these loans desirable for small business owners is the flexibility offered while utilizing the funds. From investment capital and disaster relief to loans for startup or expansion, owners use SBA-backed financing for a variety of business initiatives.

    For example, imagine a small business that has some debt, but the owner wants to expand in order to supply more customers and pick up more clients to earn more revenue. These kinds of short-term debts, like money owed to vendors or credit card debt, shouldn't have to limit the capabilities to grow a business. In these types of situations, SMEs often utilize SBA-guaranteed loans to refinance their debts and invest in their business. Through refinancing, businesses have the opportunity to adjust their payments and make their operating costs more manageable over time.

    Because of the variety of loan programs and the range of uses for the different loan products, business owners use SBA small business loans for all sorts of business expenses. Some of the most popular uses for SBA loans for small businesses are acquisition financing, debt consolidation, equipment refinancing, working capital, business expansion, and partner buyouts.

    What Are the Different Types of SBA Loans?

    SBA Loans Summarized

    SBA 7(a) Loan Amounts SBA 7(a) Loan Terms SBA 7(a) Loan Rates
    $100,000 to $5,000,0007 to 25 yearsPrime + 1% to 2.75%
    SBA 504 Loan Amounts SBA 504 Loan Terms SBA 504 Loan Rates
    $500,000 to $20,000,00010 to 30 years4.92% to 5.22%
    SBA Disaster Loan Amounts SBA Disaster Loan Terms SBA Disaster Loan Rates
    Up to $2,000,000Up to 30 years4% to 8%
    SBA Express Loan Amounts SBA Express Loan Terms SBA Express Loan Rates
    Up to $350,0007 to 35 yearsPrime + 4.5% to 6.5%
    SBA Microloan Amounts SBA Microloan Terms SBA Microloan Rates
    $500 to $50,000Up to 6 years8% to 13%

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    What Are the Benefits of SBA Loans?

    Unlike traditional loan options, SBA loans are designed specifically for small firms. That said, it offers benefits that traditional loans or non-SBA-backed loans don't provide.

    The SBA directly targets small business owners for the SBA loan programs, providing flexibility and options that are helpful for smaller companies. For example, an SBA loan can be used for various expenses. The SBA goes so far as to say that funds from SBA loans can be used for "most" business purposes – which includes SBA startup loans, loans for expansion, equipment purchasing, working capital, inventory, SBA business loans, or SBA real estate loans.

    One of the biggest benefits of SBA loans is that the loans are secured through the SBA guanratee. This greatly incentivizes lenders to offer SBA loans to small business owners. SBA agencies guarantee a majority of the loan amount for the lender, which reduces their risk and allows them to continue supporting small business owners. This leads to a higher likelihood of finding a lender that can successfully approve your SBA application.

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    What Type of Collateral Can You Use for SBA Loans?

    One of the downfalls of SBA loan programs is that small businesses will often have to put up collateral to secure their loan. While this might be intimidating for some small business owners or first time SBA loan applicants, there are many different types of collateral available that can help to secure an SBA loan. Many of these types of collateral are things that are already ready and available just from operating a small business.

    A wide range of collateral can be used to secure an SBA Loan. While different asset classes are considered, some will hold more value than others. Some of the types of collateral that can be used for SBA loans are machinery and equipment, accounts receivable, inventory, commercial real estate, residential real estate, investment properties, and marketable securities.

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    What Types of Documents Do You Need to Get an SBA Loan?

    The below forms are necessary to process an SBA Loan Application, but additional documentation will be required. – SBA form 1919 and 1920

    Downloadable SBA Forms (SBA form 1919 and sba form 1920)

    SBA 7(a) Loan Application Documents – SBA 504 Loan Application Documents – SBA Disaster Loan

    Application Documents – SBA Express Loan Application Documents – SBA Microloan Loan

    Application Documents – SBA form 1919 and 1920

    • SBA Form 1919 and SBA Form 1920

    • Profit and Loss Statements (prior 3 years)

    • Current Balance Sheet

    • Current A/R Aging Report

    • Current A/P Aging Report

    • Business Debt Schedule

    • Environmental Questionnaire

    • Complete Business Plan

    • 2 Years of Business Projections

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    How to Apply for SBA Loans

    Small business owners often ask how to apply or how to qualify for an SBA business loan. Because these are longer-term loans, there is a deeper background and credit check compared to other small business loans.

    When looking into how to get an SBA loan, business owners need to gather documentation and evidence that their small business will be alive and healthy for over 10 years. They may also have to pledge collateral to secure the loan.

    As for the document requirements, business owners will also need to provide the following:

    • Personal identification

    • Business certificate or license

    • Proof that they are the owner of the small business

    • Business financials

    • Tax returns for the last two years for the small business and the business owner's personal taxes

    • History of past loan decisions or applications

    If a small business can provide all of this information and can demonstrate strong health, has a good borrowing history, shows good credit, presents a profitable business plan, and shows that they are making money and will be able to pay off the loan, then they should be ready for application.

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